MP to Google: “You do do evil” when it comes to tax

Search giant paid just $9.4 million in taxes on $4.86 billion in sales.

Pressure is mounting on web giants Amazon and Google as a series of whistleblowers have put a question mark over their UK tax arrangements. Both companies have been accused of disguising the full extent of their UK-based activities to avoid paying tax.

At a Public Accounts Committee hearing on May 16 chairperson Margaret Hodges accused Google of "deliberately manipulating the reality of their business" and claimed to have whistleblower evidence that UK Google staff had sold advertising and invoiced UK-based customers.

"You are a company that says you do no evil," she told Google vice-president Matt Brittin. "I think that you do evil in that you use smoke and mirrors to avoid paying tax."

While Brittin obviously denied being evil he also denied that UK-staff had carried out any sales. Though he admitted that Google's sales staff in the UK met with potential clients and "encouraged" them to spend, no UK staff "execute transactions" and "no money changes hands."

On the same day the Guardian reported the claims of two UK-based Amazon suppliers who said that their deals were entirely negotiated by Amazon staff in the UK.

"I did millions of pounds of sales to Amazon. All buying and marketing was negotiated and run through Slough. I never heard anything from Luxembourg," the Guardian reported one whistleblower, a music-publishing executive, as saying.

Google's European operations are based in Ireland while Amazon's are based in Luxembourg, but both companies clearly do huge amounts of business in the UK. Google sells adverts and other services to British companies and the number of people who haven't bought something from Amazon diminishes daily.

By invoicing their UK sales through those countries however, both of which have lower corporate tax rates, they are able to avoid paying tax in the UK on those sales. When you buy something from Google or Amazon you're actually doing business with an Irish or Luxembourgian company.

Amazon told Wired.co.uk in a statement, "Amazon pays all applicable taxes in every jurisdiction that it operates within. Amazon EU serves tens of millions of customers and sellers throughout Europe from multiple consumer websites in a number of languages dispatching products to all 27 countries in the EU. We have a single European Headquarters in Luxembourg with hundreds of employees to manage this complex operation."

Wired.co.uk has contacted Google for comment but at the time of writing has not received a response.

The truth is simple enough - look - if there is a chance for anyone to legally (stress the word LEGALLY) avoid paying taxes, whether you're an individual or a multinational corporation, you're going to do it. Nobody LIKES to pay taxes, nobody WANTS to pay them, why are we so aghast and outraged that a company does the very thing we would ourselves do if we could?

Hehe, my first thought was "Well, that depends on whether you agree that paying taxes is inherently good."...

Of course, the reality is that the taxes should benefit the english people, so they are in a way being cheated, but most people probably don't feel that taxes are "their" money because the benefits are sometimes a bit abstract.

I wouldn't say that what Google does is evil. Unethical, certainly. But it's common practice among international corporations to use loopholes in international tax law to avoid paying, and by doing this, Google is drawing attention to that problem.

I just hope (and perhaps this is too much to ask) that the solution these governments come up with closes the tax loopholes, rather than just punishing Google for exploiting them.

It should be noted that Margaret Hodges and her fellow MPs are clueless when it comes to tax law in the UK. They'd be much better at their job if they asked the right questions.

To give some background, the location of the tax is largely based on the functional, asset and risk profile of the companies. They claim the selling is done via Ireland/Lux and so the profits go there. Amazon will get a small operating margin in the UK for distribution activities. In reality it looks like Google's sales team for the UK are all UK based from their LinkedIn profiles. Therefore they should have approached the questioning from that angle rather than going at them for PR points and votes.

The truth is simple enough - look - if there is a chance for anyone to legally (stress the word LEGALLY) avoid paying taxes, whether you're an individual or a multinational corporation, you're going to do it. Nobody LIKES to pay taxes, nobody WANTS to pay them, why are we so aghast and outraged that a company does the very thing we would ourselves do if we could?

Whether it is legal is tricky. Government reserves itself a right to tax company that according to government makes money on countries' territory, even if the loophole is 100% legal.

The point isn't whether this is legal. It almost certainly *is* legal.

The point is whether or not these loopholes can be allowed to continue existing. An absolutely astonishing amount of money is shoveled out of the US every year into offshore tax havens of a similar nature, even if our corporate income tax laws pick up more cash than the UK's equivalent.

This isn't even a question of morality, but of practicality.

1) Multiple governments, including the US, are running huge yearly deficits. 2) Simply raising income taxes on people, even to extraordinary rates, would not close the gap of #1. 3) To what extent should we change corporate tax law and capital gains taxes to shift the gap between tax revenue and expenditures?

The GOP has a talking point it likes to trot out, about how raising income taxes on all rich people wouldn't close the gap in the budget deficit. And it's true. What they don't talk about is how raising corporate taxes and closing the loopholes in our tax laws most certainly *could.*

Before anyone jumps down my throat, I'm not saying that's a great idea. It would have unintended consequences. We'd need reciprocal banking agreements with multiple nations and we'd probably need to reform tax law to make it cheaper to bring revenue back to the US if we wanted to entice companies to keep revenue here, despite higher taxes.

The point is, this is an often-overlooked facet of the tax revenue issue that gets ignored in favor of fighting over what constitutes a fair individual maximum tax bracket.

of course corporate tax law is nebulous compared to earned income tax law. there are lobbyists involved when it comes to creating tax law for corporations. there are no lobbyists involved with people living paycheck to paycheck.

The problem for international corporate taxes like this is two-fold. First, if a company pays its "fair share" in corporate tax for every country it does business in, it's net margin would likely be reduced to next to nothing. While the countries get a boost in tax revenue for a period, the further investment those companies make in those countries then goes to crap since there is next to no profitability in it given their revenues are eaten up by taxes across the world.

So tell me, international governments... do you really want to bite the hand the ultimately feeds you? Without businesses paying workers, you lose your PRIMARY source of tax revenue: The middle class worker.

The truth is simple enough - look - if there is a chance for anyone to legally (stress the word LEGALLY) avoid paying taxes, whether you're an individual or a multinational corporation, you're going to do it. Nobody LIKES to pay taxes, nobody WANTS to pay them, why are we so aghast and outraged that a company does the very thing we would ourselves do if we could?

I just hope (and perhaps this is too much to ask) that the solution these governments come up with closes the tax loopholes, rather than just punishing Google for exploiting them.

Some background:

HMRC (basically think IRS only old-boys-network and hopelessly corruptible) hire one of the "big four" accountancy firms to "devise" a complex-as-fuck tax structure.

These accountancy firms then leave obscure loopholes into their structures - the moral equivelent of "backdoors" - and then get hired by big companies like Vodafone, Amazon, Google, Tesco, etc etc etc to exploit these backdoors. Govt. feigns horror, dog-and-pony committee happens, HMRC then rehires the same accountancy firms to "fix" the structures. rinse and repeat.

Yes these are the same accountancy firms that signed off on bank balance sheets and caused the banking collapse. No none of them have gone to jail because accountacy appears to be the only profession in the world where if the accountant cocks up the client goes to jail.

When working in a publicly traded company, the managing directors have a legal duty to the shareholders to maximise profits. If they fail to take actions towards that goal, and do not justify that inaction, they can be removed from their directorships or worse.

When tax laws provide legal mechanisms for lowering that company's tax liability, directors pretty much have to take advantage of them, or be able to justify why they did not. If they are not able to justify a decision to pay more taxes than they are legally required, the director could get into a lot of trouble.

Anyways, the solution would typically be to close the loopholes. The UK, or any EU nation can't really do that in respect of Luxembourg since the economic rules of the union prevent fetters on intra-EU movement of capital (this is actually a good thing in most cases). If the UK was to erect tax barriers they would be infringing their EU treaty. It's possible that the treaties could be amended to address the lack of connection between where a company makes profits and where it pays taxes, but the EU is dealing with other problems and changing the treaties is an enormous task.

Public outrage is also a possible way to try and address these practices. If the public get angry enough at regional tax avoidance practices, and decide to take their business elsewhere, then that would give company directors the justification they need to be less aggressive in pursuing tax avoidance schemes. The problem with this is that it's all a matter of degree. Starbucks went through something like this and ended up 'voluntarily' paying a pretty nominal amount of tax above what they were required to pay and making a very public announcement of doing this. Most people forgot about the whole affair pretty quickly afterwards.

The truth is simple enough - look - if there is a chance for anyone to legally (stress the word LEGALLY) avoid paying taxes, whether you're an individual or a multinational corporation, you're going to do it. Nobody LIKES to pay taxes, nobody WANTS to pay them, why are we so aghast and outraged that a company does the very thing we would ourselves do if we could?

The truth is simple enough - look - if there is a chance for anyone to legally (stress the word LEGALLY) avoid paying taxes, whether you're an individual or a multinational corporation, you're going to do it. Nobody LIKES to pay taxes, nobody WANTS to pay them, why are we so aghast and outraged that a company does the very thing we would ourselves do if we could?

I like paying taxes

I like having roads

I like having basic infrastructure

I like having healthcare (I live in the UK)

I like having a police service

I like having a fire service

I like having ambulances

I like having an old age pension

What's not to like?

i, too, would like this. but in america we take great ideas like what you describe and label them with words like 'communism' and 'bleeding heart', so our education system sucks bullocks and people get giant bills for ambulances.

Structuring your affairs to pay the least tax legally possible is not evil. It's just intelligent. The US Supreme Court, at least, has directly said so, though I'm too lazy to scare up the quote now.

If the government doesn't like the results, then they need to change the laws, not demand that companies voluntarily hand over some nebulous amount of money, in order to win a gold sticker next to their name or something.

In this case, Google's actual sales outfit is in Brussels; they have remote sales reps working in the UK. The UK organization doesn't make the sales, so the UK doesn't get to tax the transaction as much as they want to. So they need to change their laws, while being aware that Google might just choose not to have remote reps in the UK anymore, instead having them travel from France. This would obviously be less efficient for Google, but you can pay for an awful lot of hotel rooms with a few hundred million in tax savings.

How is using fully legal methods to reduce one's expenses unethical? A corporation exists to make money. Spending money for no gain when there are legitimate ways of not spending that money is arguably more unethical.

Is it unethical to take the personal exemption for taxation as a person? Is it unethical to itemize deductions if you're over that so you pay less taxes? If you've ever done any of those things to reduce your personal tax burden (which are all perfectly legal), how is a corporation doing the same thing without breaking the law any different?

Unless, of course, it's just "Those nasty evil rich corporations are cheating by using smart accounting people to not pay as much as I think they deserve to." In that case, fix the laws. Don't blame the people playing the game to the best of their ability within the legal framework they are given.

Anyway. I'm not on Hodge's political side, but her committee has uncovered one very important bit of information. The big accountancy companies send staff to work with Her Majesty's Revenue and Customs to help write tax law. The big accountancy companies then advise their clients how to minimise their tax liability. This is basically insider trading.

Close up the loopholes or put up with it. Microsoft sells versions of it's software to itself, a company it completely owns, for free to avoid taxes in the UK. This stuff isn't new, and the 'not playing fair' laws are just a lazy rules that don't even touch on correcting the system in place.

When working in a publicly traded company, the managing directors have a legal duty to the shareholders to maximise profits.

Utter horseshit. This figleaf canard to psychopathic company behaviour is supported by neither the law or, well, company behaviour. I mean if it was true how do you explain the private jets, the private boxes at sports events, the golf memberships, CEO "golden parachutes" etc etc. None of these directly maximise profits.

As a counterpoint for Amazon - who operates on razor thin margins... would they be able to operate and deliver you goods at such a high level of service and for so cheap if their tax burden was significantly higher?

It cuts both ways. The government may not get as much revenue, but the people are not necessarily without significant benefit.

Honestly as long as its legal they would be stupid if they didn't use it. Because their competition will.

So honestly if you do not like the way companies are using your tax system: FUCKING CHANGE IT.

Lower the way to high base rate and don't let them get away with pretty much anything after that. All these loopholes sound like a good idea but it never works out like that. And governments like them in theory because it gives them control over business. But tax lawyers always are better.

Personally I think the solution to this has to be a change in the way that (the UK Government at least) calculates tax..

Calculating based on net profit from UK based sales would be a good start.

If you are selling things to organisations or individuals in the UK then that gets taxed (like a back-office version of VAT or "Sales Tax" but perhaps based on profit rather than pure revenue different)

If you are based in the UK and selling things to people overseas .. good luck to you. It means you are bringing money from other countries and using it to pay UK salaries / infrastructure / supporting services (all of which generate additional indirect tax revenue)

I could care less where their headquarters are based, I don't really care where Amazon / Google want to put their head office. Base it all on who you are selling it to .. it _could_ be a better system?